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There is only so much of multimillion residential assets that the Middle East’s wealthy can buy. That is why more from their ranks could be turning their attention to possibilities in commercial property.
According to the Knight Frank consultancy, in the next 10 years, only 53 per cent of Middle East ultra high networth investors are going to pick up residential property. This is quite a turnaround from the 82 per cent who did so during the last decade. (These are based on findings from Knight Frank’s 2016 “Attitudes Survey” in conjunction with the consultancy Wealth-X.)
“Despite the recent decline in oil prices and the slowdown in global trade and commercial volumes, UHNWIs are committed to the growth of ... the industrial, logistics and transport sectors over the next decade,” said Dana Salbak, Head of Mena Research at Knight Frank. “While residential property was historically seen as a secure form of investment, the volatility of the asset class has made the commercial sector more appealing as its value extends beyond the ability to produce income.”
The regional buyers’ allocation on offices will rise from a 41 per cent share between 2005-15 to 53 per cent between 2015-25. Warehousing and logistics will also be a “key element” in their portfolio over the next decade, with 32 per cent saying they would invest in such assets.
Such sentiments instantly raise the prospect for the recently announced Dubai Wholesale City, a multibillion dollar development that, in the next decade, will anchor Dubai’s commercial real estate prospects.
Existing office space
According to the Knight Frank “Wealth Report”, “As more international corporations establish regional headquarters and expand and consolidate existing office space, there will be a greater focus on quality in Dubai. We see opportunities in well located, wholly owned Grade A office developments and in logistics warehouses connected to the new Dubai airport.”
If it is further afield that the region’s investors have an eye on, the “global gateway cities” will continue to top the charts. “The availability of diverse investment products (e.g., REITs (real estate investment trusts)) have made property more accessible to a wider range of investors, while the high level of market transparency and diverse expertise across these markets enables private investors to overcome their knowledge gaps,” Salbak adds.
According to Real Capital Analytics data, total cross-border investment from Asian and Middle Eastern capital totalled 18 per cent of the global overall at the peak of the last commercial property investment cycle. That has now touched 35 per cent, more often than not focused on the gateway cities.
At the bottom of the cycle in 2009, investment into global office, retail, industrial and hotel properties stood was an estimated $216 billion (Dh792.7 billion), RCA data shows. A year later, global investment for these had risen 67 per cent to $362 billion. Four years down the line, it has exceeded of $700 billion.
Factbox: The push towards commercial realty
Commercial property sectors popular with Middle East and North Africa’s wealthy investors (Percentage of respondents)
Over the past 10 years Over the next 10 years
Residential 82% 53%
Offices 41% 53%
Retail 15% 21%
Hotels 47% 38%
Credit: Knight Frank
Source: Manoj Nair, Associate Editor, gulfnews.com